The Romanian Competition Authority Makes Binding Commitments Made by the Central Depository on Registry Services to Securities Issuers (Depozitarul Central)

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Published in e-Competitions | N° 57305,

Since 2010, following the amendment of the Romanian Competition Law no.21/1996, the Romanian Competition Council (“RCC”) has been able to accept legally binding commitments offered by companies in order to address the concerns relating to potential infringements of competition law.

The acceptance of commitments leads to the closing of the investigation with respect to the alleged anti-competitive conduct without any fine against the investigated parties. However, the failure to comply with the commitments’ decision will be sanctioned with a fine in amount of up to 10% of the company’s annual turnover.

On 11 December 2012, the RCC announced that it had adopted a decision accepting the behavioral commitments offered by SC Depozitarul Central (the Romanian Central Depository, “RCD”), to address the potential concerns that it may have abused its dominant position on the market for the provision of registry services to securities issuers.

On the capital market in Romania, RCD ensures the clearing and settlement of the transactions concluded on Bucharest Stock Exchange and keeps record of the issuers’ registries. Prior to January 2010, when Depozitarul Sibex (“Sibex”) became the second securities depository, the RCD was the only institution authorized to ensure the record of securities transactions on regulated markets or alternative trading systems, thus holding a de facto monopoly position.

The RCC initiated proceedings against RCD following a complaint lodged by a financial investment company (SIF Transilvania) in January 2011 against the additional tariff imposed by RCD on the financial instruments holders that intended to move the shareholders’ registry to another depositary, without the withdrawal of the financial instruments from trading.

Although at the time of the investigation the market hosted two securities depositories, no real competitive constraints were faced by RCD, as 1178 securities issuers were registered with it, and only 2 securities issuers were registered with its competitor, Sibex.

In this context, the investigation revealed that shortly after Sibex entered the market, RCD introduced a new tariff of up to Lei 5 / shareholder that any issuer intending to switch to another depository would be required to pay. No analysis regarding the opportunity, impact or level of this tariff was performed by the investigated party.

In the course of the investigation, the RCC also identified a second tariff imposed by RCD, which shared common features with the former tariff. This was charged for the same type of service, the registry delivery, in case the financial instruments were withdrawn from trading. However, the tariffs amounts were significantly different.

In view of the above, the RCC had concerns that RCD may have abused its dominant market position, by (i) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions and refusing to deal with certain suppliers or clients and (ii) charging excessive or predatory prices, with the aim of excluding the competitors from the market.

As for the first allegation, the RCC considered that the tariffs that the issuer would have to incur to switch to another depository, by their object and level, might be so high as to make such an option too expensive. As a consequence, this would result in transforming the issuers into captive clients.

Another concern of the RCC was related to the impact of tariffs on RCD competitors. The RCC was of the opinion that the conduct of the dominant depository might lead to the anti-competitive foreclosure of its sole competitor, Sibex. According to the EU Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, the foreclosure refers to the situation where effective access of actual or potential competitors to supplies or markets is hindered or eliminated as a result of the conduct of the dominant undertaking whereby the dominant undertaking is likely to be in a position to profitably increase prices to the detriment of consumers.

In this case, the RCC considered that the transfer costs tended to lock the issuers into RCD, and this captivity further operated as a tool meant to prevent the access on the market of other competitors.

In order to address the concerns expressed by the competition authority, the RCD offered several commitments. Although the RCC practice has shown that usually structural commitments were preferred, as they were considered to be more effective than the behavioral ones, in this case, the RCC accepted a set of behavioral commitments, which aimed at removing the barriers to transfer that issuers could face when changing the registry operator.

Thus, RCD committed itself to eliminate the tariffs charged for the registry delivery and to implement a transparent procedure to be followed when issuers requested the registries.

In order to guarantee that the issuers would be able to transfer without any additional costs, RCD offered not to introduce any transfer penalties, tariffs for the registry delivery or any other tariffs of an equivalent effect, which would give rise to payment obligations upon the termination of the contract and increase the transfer costs.

In addition, as part of its commitments, the future tariff increases will be decided by RCD exclusively on the basis of the objective factors expressly mentioned by the decision accepting the commitments (such as the increase in fixed costs (rent, utilities), direct or indirect taxes, investment costs due to moral or physical usage, regulations costs (taxes imposed by the National Securities Commission), etc.). Even so, the increase would not exceed the maximum level of the growth indicators related to these factors. In the RCC view, this commitment ensures that the RCD will not be able to pass on to other tariffs the transfer costs to other depositaries. Moreover, it also contributes to the protection of competition, as it improves the transparency and objectivity of the tariff grid.

The registry delivery procedure was also subject to commitments. The RCD committed to define and observe a transparent and easier procedure, ensuring that the registry delivery, both to the issuer or to another central depositories, will be promptly performed. Thus, a maximum 5 working days term was agreed for this operation, eliminating the risk of preventing the issuers’ transfer, by delaying the registry delivery procedure.

As to the duration of the commitments, the RCC relied on the future changes that the market for the central securities depositories will face due to the entry into force of the Regulation of the European Parliament and of the Council on improving securities settlement in the European Union and on central securities depositories (CSDs) and amending Directive 98/26/EC. The EU Regulation will open the market for the central securities depositories, introducing the right of issuers to record their securities in any central securities depository authorized in the European Union. Thus, the dominant position of RCD on the national market will be substantially reduced on the European services market, where the company will compete with other depositories.

For this reason, the commitments will remain in force until the adoption of the above mentioned Regulation or for a period of four years as of the decision accepting the commitments, whichever event occurs first.

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